Investments: Executive Pay Should Be Controlled



london_stock_exchange1

london_stock_exchange1

According to business secretary Vince Cable, shareholders should be given more say on executive pay, in order to make sure executives do not have “rewards for failure”. While he maintained he did not want to control pay via the government but wanted shareholders to have more control, including a veto.

Shareholder Control in the Face of Greed

Mr. Cable will be speaking at the Liberal Democrat conference and will propose plans to control multi-million pound packages, including a requirement for disclosures of criteria used in determining pay and perks or putting representatives for the employees onto committees involved in remuneration.

So far, the greed and lack of restraint shown by executives has appeared to have been accepted, with information that the bonuses and pay increases did not reflect performance. According to the business secretary, executive pay has risen by nearly 400% throughout the past ten years while share prices and basic employee pay has not gone up.

The politician called for pay to stay the same or continue increasing if businesses were successful, saying, “What I want to see is rewards for success not rewards for failure.”

A Long Amount of Discussions

Before these proposals take form, discussions would have to be completed within the business community, with ideas that shareholders could block pay awards that they believed to be unreasonable. A paper on the discussion of the proposals will be released in October by the Department for Business, Innovation and Skills.

In October 2012, after three months of consultation, requirements for reporting salary information for all companies tied to the stock-exchange will be adjusted. The details are currently recorded in separate portions of annual reports, and will be brought together with an additional total figure, creating express disclosure for shareholders to see.

In addition, included in these reports will be explanations and reasons for the package, in addition to projected values for the next year’s minimum and maximum salary for every executive. The median amount of remuneration for chief executives tied to the FTSE100 had risen to £4.2 million a year in 2010. In 1998, this number had been £1 million. This is more than four times the previous amount, and does not reflect the fall in shares after the banking crisis as it should.

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